Infosys reported a decline of 2.61per cent in revenues at Rs 5,635 crore.
Infosys Technologies has announced its fourth quarter numbers. Its Q4 FY09 net profit dipped 1.7per cent at Rs 1,613 crore as against Rs 1,641 crore on quarter-on-quarter basis.
It reported a decline of 2.61per cent in revenues at Rs 5,635 crore as against Rs 5,786 crore QoQ.
Guidance for Q1 and FY10
The company is likely to report Q1 FY10 revenues at Rs 5,379-5,480 crore, while EPS is seen at Rs 23.55/share. The company guided for 16per cent drop in Q1 EPS on QoQ basis.
The company is expecting FY10 revenues to decline by 3.1-6.7per cent in dollar terms while increase in revenues by 1.7-5.7per cent in rupee terms. It is seeing EPS for full year FY10 at Rs 96.65-101.18 a share versus Rs 104.43 in FY09. Its FY10 EPS for ADS is seen down by 11-15per cent.
Rupee guidance
Below estimates
Dollar guidance
Below estimates
Rupee Q4
In line with estimates
Dollar Q4
Missed estimates
Revenues
Down against estimates
Margins
Under pressure
Offshore rates
Down 4.5per cent
Commenting on the outlook, Infosys COO said the pricing environment continues to be challenging. The company management added that the environment is challenging as clients are facing tough times. With nearly 70per cent of its clients cutting their IT budget by over 10per cent, the situation looks grim, the company added.
The management feels that the guidance will be flat to marginally negative in constant currency terms. The company sees its operating margins to fall by 300 bps while its net profit margins are likely to fall by 200 bps. It sees an average drop in prices to be around 6–6.5per cent. The reason for de-growth, the management said, was the delay in decision-making.
With regard to wages and hiring, the management made clear that there will neither be a hike nor a cut in wages, but job cuts are planned in FY10.
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Here is a verbatim transcript of the exclusive interview with the Infosys management on CNBC-TV18. Also watch the accompanying video.
Q: Take us through the guidance first. Why have you guided a roughly 3–7per cent degrowth in revenue in dollar terms for the next year?
CEO and MD, Infosys, S Gopalakrishnan: The environment continues to be challenging. Most of our clients are seeing challenging environment impacting their own revenues, their own performance and currency market seemed to be quite volatile. There is a lot of uncertainty and when we did a survey of our customers they told us that their IT budgets are going to be down. So based on all that and the visibility we have, we gave guidance which is, if you look at constant currency terms, about flat to -2–2.5per cent.
Q: What is the problem in laying out the guidance? Is it that you are expecting a lot of pricing decline in fiscal 2010 or is it that new business is getting tough to come by, and therefore, you are factoring in quite a bit of volume de-growth?
COO and Board Member Infosys, SD Shibulal: As we have said in the past, our guidance is a statement of fact as we see it today. So we are looking at the next one year, next quarter and giving you the guidance based on all the facts which we know. So we have to consider all those facts. Recently, we have done a survey of our clients and only 61per cent has closed their budgets, 89per cent has said that there is downtick in their IT budgets. So we are considering all these factors. While 89per cent said that there is a downturn in their budgets, 22per cent said that the offshore spend will remain flat and 5per cent said that the offshore spend will go up. So we have to consider all these factors and we have considered all of those while giving the guidance.
Q: The margins have slipped in Q4 but what are you factoring in giving out the Q4 guidance, how much of a slippage in margins?
Balakrishnan: If you look at the next year's guidance, we are assuming that in Q1, the revenues could decline, and for the full year, the revenues could dip on a constant currency basis, something around 4per cent at the lower end of the band and almost flat in the upper end of the band. We assume that the operating margins could come down by around 300 bps because we take Q4 pricing to remain constant for the next full year. This means an average drop in pricing between fiscal 2009 and fiscal 2010 by around 6-6.5per cent. Of course, it could get an offset to some extent because of the rupee, but, overall, the operating margins could impact by around 300 bps and on the net level, it could impact around 200 bps. Normally, when we give the guidance, we always say that the operating margin could be within a band of 50-100 bps, in this challenging environment that has gone to 300 bps.
Q: For FY09, you have missed the full year guidance that you have started off with. You have also worked with the back-ended theory, which didn't work out for that fiscal year. What is it that you are factoring in for FY10? Do you expect this one to be a back-ended year of growth because your Q1 EPS growth shows quite a sharp dip?
Gopalakrishnan: As Balakrishnan said, we have assumed a decline in Q1, and then, with a slight growth or almost flat for the remainder of the year. We did revise our guidance for FY09 in the end of Q2 and Q3 and you have to remember that the world before September 15 and the world after September 15, was very different. We had one of the best second quarters ever in the recent times with significant sequential growth. Therefore, coming off that, we said that we have to revise the guidance down. Hence, we immediately reacted—we saw what was happening and we had to change the guidance but even if you look at this quarter, we met the revised guidance at the bottom.
How this year is going to churn out? We have given you the position from today, from what we know today. It is a challenging environment but we felt that it is important for the company to share the data we have with everyone and that is what we have done at this point. When we give a guidance, we work hard to meet that and by and large we have done that. It is just that, if the environment is quite volatile, fluctuations in currency, the changes that are happening are unprecedented in some sense and that is the challenge we are facing.
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